Utah Passes Bipartisan Medicaid Reform

With most states struggling to make even small changes to their Medicaid systems, Utah recently enacted bipartisan legislation that would completely overhaul its Medicaid program. Such a move might have provoked controversy in other states, but in Utah not a single member of the House or Senate voted against the legislation.

Sen. Dan Liljenquist (R-Bountiful), the sponsor of the plan, said the need for Medicaid reform is evident to all the members of the legislature, explaining it in starkly fiscal terms.

“Ten years ago, Medicaid required 9 percent of the state’s funds. This year Medicaid ate up 18 percent. By 2020, just nine years from now, 36 percent of our budget will be directly allocated to Medicaid,” Liljenquist said.

Unanimous Approval for Managed Care

The legislation to overhaul Utah’s Medicaid system passed both the Utah House and Senate unanimously. A diverse coalition supported the legislation, including hospitals, higher education, advocates for the poor, and taxpayer groups.

This proposal would move Utah’s Medicaid system away from a fee-for-service model, where providers are paid a set fee for every procedure they provide, to an accountable care organization model. Under the plan, Utah would pay an accountable care organization a fixed premium to provide care for each Medicaid recipient. This premium would differ for individuals based on the type of eligibility category of the recipient and the severity of the recipient’s medical conditions.

According to a recent study by Michael Ramlet and Carey Lafferty of the American Action Forum, this approach cuts at Medicaid’s most serious fiscal problem.

“Fee-for-service (FFS) reimbursement is at the heart of what is wrong with the Medicaid program. By underpaying providers for uncoordinated care, FFS has impaired patient access, led to lower quality outcomes, and hampered efforts to instill greater program accountability,” the authors wrote.

“Moving to a managed care model in Medicaid is a fiscally responsible plan forward. This approach is based on smaller, successful programs across the country and has been shown to improve access to care, coordination of care, provider accountability and quality outcomes for patients,” they write.

Other Policy Changes

The plan also replaces limits on copayments for Medicaid-covered services with a sliding copayment scale based on the recipient’s income and providing incentives for Medicaid recipients to engage in healthy behavior. Another element of the plan would allow those eligible for Medicaid to use their premiums to buy private health insurance.

The plan sets a growth target for Medicaid based on long-term state revenue growth estimates. If actual spending for Medicaid falls below the target in a particular year, the difference will be deposited in a contingency fund designated specifically for future Medicaid spending. If growth exceeds the targets, the state will employ a predetermined formula to reduce benefits.

According to Michael Bond, an economist and Medicaid expert who teaches at the University of Arizona, “you have to have competition among the accountable care organizations for this plan to work.”

With such competition, says Bond, you will have a way to both control costs and improve service to the beneficiary.

Potential Flaw, Snag

Bond sees a potential flaw in the legislation, however: the premium assistance dollars can only be used in the Utah health insurance exchange.

“This exchange utilizes flawed criteria for determining insurance premiums; it way undercharges the sick and way overcharges the healthy,” Bond says. “Utah should create a real exchange where every company offers a product with no price controls. Let the Medicaid beneficiaries walk in there with their large premiums and choose an insurance company.”

The legislation enacted in Utah has similarities to a plan in place in Florida, which Bond played a role in creating. According to an analysis by the University of Florida, that program seems to have controlled costs better than the traditional fee-for-service system.

The Utah plan, however, must still be approved by the federal Department of Health and Human Services, and Bond does not hold out much hope HHS will approve any truly innovative Medicaid reforms.

“I suspect that anything DC approves will be very straitjacketed,” Bond says.